Residential property prices in Dubai are set to fall another 10% and those in neighbouring Abu Dhabi by 13% in 2010 as supply expands in both markets, according to a new survey.

Dubai’s once booming property market has been hit hard as a result of the global financial downturn and the Gulf state’s debt crisis and real estate prices have already fallen by 55% since their peak in the third quarter of 2008.

The predictions in the poll of banks, investment firms and research institutions from Reuters though is also a blow for oil rich Abu Dhabi, the capital of the United Arab Emirates, which is regarded as being less exposed to the financial crisis.

Conditions in the UAE property market will remain weak in 2010 because of unfavourable demographics, property oversupply and risks associated with cancelled and delayed projects, according to Patrick Rahal, an analyst at bank The First Investor in Doha.

Real estate services company CB Richard Ellis expects 31,194 news properties to come onto the market this year in Dubai and in excess of 10,000 in Abu Dhabi. Vacancy rates and default levels in Dubai are set to increase, some analysts in the poll said.

Overall prices in Dubai are likely to remain flat in 2011 before edging 2% higher in 2012, the median showed. Abu Dhabi house prices are expected to drop a further 5% next year and then flatline in 2012.

Residential rents in Dubai are predicted to fall 10% during the rest of 2010, remaining stable in 2011 and rising 4% in 2012, according to the median forecasts in the poll. Rents in the capital Abu Dhabi are expected to fall 15% more in 2010, a further 5% in 2011 before rising 4% the year after.

Only one respondent in the poll said house prices in Dubai had already reached a bottom. Two said they expected prices to reach a trough in the second half of 2010, five said in the first half of 2011, four said in the second half of 2011 and three said they would in the first half of 2012 or later.

Meanwhile a wait and see approach by sellers would push back inevitable declines and delay a recovery as liquidity is likely to remain constrained until 2012, said Jesse Downs, director of research and advisory services at Landmark Advisory.

‘Prices are still expensive compared to income levels and I expect to see defaults to increase and project delays,’ said Aberjeen Jiwani, research analyst at Securities and Investment Company (SICO) in Bahrain.

‘The negative sentiment relating to developers will remain in the next six months to a year with the impending restructuring of Dubai Holding,’ she added.